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Even more Articles on Spread Betting: The Origins of Spread Betting The Present and the Future Spreads going Mainstream Making Money from Financial Spread Betting Financial Spread Betting vs Shares Dealing Futures Trading vs Contracts for Differences vs Spread Betting Contracts for Differences vs Spread Betting Trading Spreads (US) vs Spread Betting (UK) Contracts for Difference, Spread Bets or Covered Warrants? Is Spread Betting OK for a Complete Novice? Spread Betting Rough Guide Newbie Tips Shorting Shares - Strategies More on Strategies and Attitude Even more on Strategies Director Dealings Spread Betting Roundtable - talking to four experts Talking About Derivatives Spread Trader Interview Spread Trader Interview (2) Spread Betting Interview with 'John Trader' Talking to Sally Nicoll - author of Bets and the City Talking to Traders who make a living by Spread Betting Lessons from the Pros - Leverage and Rolling Bets Scalping and Spreads Spread Betting Myths and Lies Do I really want to? - The Dangers Featuring Richard Glynn - Chief Executive of Sporting Index Swing Trading Want to know the Secrets of Spread Trading? Spread Betting - Your Tax Shelter An introduction into CGT (Capital Gains Tax) Highlighting the Pros and Hazards of Spread Betting The Majority of Day Traders Lose Added 18th Mar 2008 Spread betting is spreading fast How the Spreads are Calculated HistorySpread betting, invented by an American, Charles K. McNeil in the late 1930's, and only introduced in the United Kingdom in the 1980's, is the term used to describe bets placed on the result of an event where the 'payoff' is based on the precision of the bet, rather than on a simple win or loss. A bet is made against a 'spread' or index, and is decided on whether the result is above or below the spread. It all started in 1974 when IG Index allowed city traders to bet on the future direction of the price of gold. This early phase of growth was not spectacular. But it was steady and by the mid- to late-1990s, there were half a dozen established players. Why is it called Spread Betting?The truth is that spread betting firms do not like being called betting companies. Unlike a traditional bookmaker where it is the bookmaker's view against the client, spread betting companies claim to hedge all bets. This means that when the client places a trade on a financial instrument, for example a share, then the spread betting company immediately places the corresponding equivalent in the open market. The FSA, the watchdog of the financial service industry, has declared that in order for profits of investors to be tax-free it must be called a betting company. Unlike with a traditional stockbroker where the investor pays capital gains taxes on profits, all profits made through a financial spread betting company are tax-free per law. However, the client will pay a spread, which is slightly bigger than in the real market. This will cover commission, stamp duty and tax for the spread betting company. A tax-efficient way to gain exposure to the financial marketsUnlike with a lot of investment products, the charging structure for spread betting is relatively straightforward and simple to understand:
Will Financial Spread Betting always be Tax-Free?The Spread Betting industry employs a lot of people and if you removed the tax-free status then you would destroy the industry overnight. Consider how much money the Treasury receives directly from the industry already in corporation tax and all the personal income tax that the personnel is paid. That's a lot of tax of income. And anyway what happens to the tax-free winnings of the spread betting punters? Sure they don't pay direct tax on it, but I'd bet that at least 80%-90% of the money filters back into the economy. So what's the catch and how do the spread betting companies make their money?All the costs associated with spread betting are included in the bid-offer spread; this includes all the firm's admin costs and the costs associated with hedging the risk on any open positions. What this means is that the wider the spread on any trade, the more you are paying for that trade. Thereby it is worth comparing the different firms and finding the best one for the markets in which you are interested. What to consider when choosing a spread betting companyMainly spread tightness, spread skewing, slippage, time to fill, price expirations, hitting stops, dispute resolution, phone trading (time to answer, manner) internet trading (platform, functionality, ease of use, reliability), charting, 24 hr trading, markets covered and statements. Is there Something Suspect or Morally Dubious about Spread Betting?The brief answer is no, but real events some time ago involving the Spaniard and the Plumber have raised the question. Continues here - Regulatory action to bite; CFDs and spread betting attract increased attention from the FSA |